A contractor's general liability policy has a $2 million per occurrence limit and a $4 million aggregate limit. After paying a $1.5 million claim, what coverage remains for additional claims during the policy period?
Correct Answer
B) $2 million per occurrence, $2.5 million aggregate
The per occurrence limit resets for each new claim ($2 million), but the aggregate limit is reduced by claims paid ($4 million - $1.5 million = $2.5 million remaining aggregate).
Why This Is the Correct Answer
The per occurrence limit of $2 million remains unchanged because this limit applies to each individual claim or incident, regardless of previous claims. However, the aggregate limit represents the total amount the insurance company will pay during the entire policy period, so it is reduced by any claims paid. After paying $1.5 million, the remaining aggregate coverage is $4 million - $1.5 million = $2.5 million. This means future claims can still be covered up to $2 million per occurrence, but the total remaining coverage for the policy period cannot exceed $2.5 million.
Why the Other Options Are Wrong
Option A: $500,000 per occurrence, $2.5 million aggregate
This incorrectly reduces the per occurrence limit to $500,000, but per occurrence limits do not decrease when claims are paid - they reset for each new incident.
Option C: $2 million per occurrence, $4 million aggregate
This incorrectly shows the aggregate limit as unchanged at $4 million, but aggregate limits are reduced by the amount of claims paid during the policy period.
Option D: $1.5 million per occurrence, $2.5 million aggregate
This incorrectly reduces the per occurrence limit to $1.5 million, but per occurrence limits remain constant and do not decrease based on previous claims paid.
Memory Technique
Think 'PER occurrence = PERmanent (doesn't change), AGGregate = AGGravated by claims (gets reduced)'
Reference Hint
Florida Building Code - Chapter 1, Section on Insurance Requirements, or Business and Finance reference materials covering general liability insurance concepts
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